THE IMPACT OF DEBT FINANCING ON THE PROFITABILITY OF TEXTILE INDUSTRY OF PAKSITAN

Abstract

Purpose: The aims of this research is to study the impact of debt financing on the profitability. The main focus of the research study is on debt financing because financing is an important for long term and short term need of textile industry. Different dependent and independent variables are being used to find out the relations between debt and profitability of textile industry of Pakistan, by using 10 years data from 2006 to 2015.Dependent variables used are Return on Assets and Return on Equity whereas Short term Debts, Long term Debts, Total Debts and Sales Growth are used independent variables. Methodology: This Research is explanatory in nature and the data collection is mainly from the secondary sources. This research study focuses on three companies which are related to the textile industry of Pakistan. All three companies are listed in Pakistan Stock Exchange. The data is gathered from the financial statements or annual reports of the companies which are easily available at company’s websites. Findings: The study determined the relationship between variables, while SPSS is used to find out the relationship between the variables following is the result after analysis is concluded that there is no significant relationship between Return on Assets and Long term Debt; Return on Equity and Total Debt; Return on Short term Debt; Return on Equity and Long term Debt. However Return on Assets and Total Debt is negative but significant and Return on Assets and Short term Debt is negative but significant. Practical Implications: This research study will help the management of the company in their decision making for the financing, this study also help the companies to maintain their debt portion and the profitability.